Do Life Insurance Rates Increase and Why?
The time at which your annual premium increases will vary depending on the type of life insurance policy you own. The premium is developed by multiplying your rate per $1,000 of life insurance coverage by the amount of life insurance.
So, if your rate is $3 per thousand, and you have $200,000 of life insurance, your annual premium will be $3 X 200 = $600.
Premiums Usually Increase for the Following Reasons:
Your rate is based on the type of life insurance policy, your age and gender.
In addition, your personal risk factors impact the rate, including your health, lifestyle, tobacco use, driving record, family health history, occupation, hobbies, height-to-weight ratio, etc.
At What Age Do Rates for Life Insurance Increase?
The age at which premiums increase, if at all, depends on the type of life insurance policy you own.
If you have term life insurance, your premiums will increase when the guaranteed period expires. That is usually when the number of years in your term has ended (for example, if you have a 5-year term, premiums go up 5 years from the time you bought the policy).
However, some premiums are not guaranteed to remain the same for the full-duration of the term period. Make sure you ask what the "guaranteed level" period is when you buy your term life plan.
With a whole life insurance or universal life insurance policy you might never have an increase in price. However, it depends on the policy. Some insurers offer policies that can increase rates at any time, as long as you are not singled out for the premium increase.
Other insurers may raise rates every five years, or at certain ages. If you buy a whole life or "no lapse" universal life policy, your premium may be locked-in for your entire lifetime.
If you wait until next year to buy your life insurance policy, the premium you pay will probably be more than if you had purchased it today.
Age is one key factor when buying a life insurance policy, which means, the longer you wait to buy, the more it should cost you. But, once you have a policy, the premium you pay depends on the type of life insurance you have.
If you buy a "level term" policy, the premium will remain level (the same) for the specific number of years stated, which is usually 10, 15, 20 or 30 years depending on the type of term policy you buy.
At the end of the stipulated term, your premium will increase. However, if you buy a whole life insurance policy, then you would likely not see any premium increase for the entire duration of your insurance policy.
Why Did the Premium on My Term Life Insurance Go Up?
A term insurance policy is referred to as "pure protection". That’s because term life is the true definition of life insurance – to replace lost income due to premature death.
Term life provides a death benefit for a specific period of time and does not build up any cash value inside the life insurance policy.
Term insurance is usually used to provide temporary protection for a mortgage loan, business loan, or as a form of income replacement of a primary breadwinner for the family.
Term life can provide the maximum amount of life insurance death benefit for the lowest cost.
The most common type of term insurance is guaranteed level premium term life insurance.
Depending on your age, you may purchase a term of 10, 15, 20 or 30 years of coverage. The insurance premium is guaranteed not to increase for the entire duration of the policy period.
The longer your term period, the higher the annual premium because as you get older, more expensive to insure years are averaged into the term life insurance premium.
At the end of your term period, the premium may increase quite a bit. That’s why it is very important to select the right "term" period and make sure you are aware when the term ends.
Most term life policies are "convertible". Convertible term insurance means you may convert or exchange your current term life insurance policy for a permanent life insurance policy, such as, whole life or universal life insurance with no additional underwriting required. That means, you will not have to take any physical exam to qualify for the new policy. Your insurability is preserved no matter the condition of your health.
However, term insurance has a deadline for conversion. It is very important that you are aware of how long you have to convert your current life insurance policy.
Many young and healthy term life policyholders choose to purchase a convertible term insurance policy because of the low-cost premiums and basic coverage that it affords their family.
At some point, many of these life insurance consumers decide to upgrade their term life insurance policy to a whole life insurance plan for a stable policy that will cover a mature family’s insurance needs.
If you find yourself in the situation where your premiums increased because your guaranteed level premium period ended, you should consider buying a new term life or permanent life policy to replace your current life insurance.
However, if your health has deteriorated and poor health would prevent you from qualifying for a new life insurance policy, you may be better off keeping what you have. Most level term policies include a renewal option and allow the insured to renew for a maximum guaranteed rate if the insured period needs to be extended.
The renewal of your term insurance policy may or may not be guaranteed and the insured should review their life insurance contract to see if evidence of insurability is required to renew the term policy.
Term life insurance is a very inexpensive way to provide for your family’s future financial security in the event you are not there to do so.
How Age Affects Life Insurance Rates and Premiums
Age is the most important contributor to both term life insurance and permanent life insurance rates. How old you are plays the biggest role in how much you will pay to purchase a new life insurance policy.
The Age Factor for Life Insurance Rates
The annual premium, or "rate", for a term life policy is determined at the time you purchase coverage and set for the entire duration of your policy term.
Typically, the premium increases around 8-10% for every year
For example, a 45 year old male may pay on average around $1,100 annually for a new 20 year term life policy with $1,000,000 of coverage. However, the same term life policy purchased at age 46 may cost around $1,200 – and around $1,320 a year if purchased at age 47.
Each year the average cost per year of a new term life policy increases because you are one year closer to your life expectancy, which means you are more expensive to insure.
On average, life insurance rates increase each year by about 5-8% in your 40s, and by around 9-12% each year if you are over age fifty.
Term life spreads the premiums over a period of 10, 15, 20 or 30 years so they can keep the annual costs the same each year. So, instead of paying low premiums when you’re young and much higher premiums at an older age, you pay the same premium each year for the entire duration of your coverage.
But, once the term of your current term policy expires, you may face a very big increase in your annual rate based on your age.
The insurer needs to adjust your rate for your new life insurance policy if you choose to get life insurance again after your initial policy term expires. The new rate reflects your current age and life expectancy.
Since each year adds more dollars to the annual cost of a new life insurance policy, try to purchase your coverage before your next birthday.
To make sure you get the best price for the coverage you need, make sure to compare life insurance rates from several of the top-rated insurance carriers.
Do Term Life Insurance Rates Go Up?
When you buy a term life plan, you lock-in the rate for the entire duration of the term you select for coverage.
For example, if you buy 20 years of term insurance at a certain rate, that rate is what you can expect to pay each year for the entire 20 year term of your policy.
Once you lock-in your rate based on your health, you have the same rate for the full term you choose for your coverage period. If your health changes, the insurance company can’t come back and increase your rate based on the change.
The insurance company is making a decision for years, or decades, and they cannot raise the term life rate you are originally guaranteed when you purchase your policy, so they need to closely review each new application for potential health issues.
The life insurance underwriting
process for a term life policy can take months and the higher the amount of
life insurance coverage requested, the longer that process may take.
Keep in mind, rates do not increase during the duration of your policy term, but if you need coverage after the term ends, the rate will usually be much higher if you can qualify for coverage based on your health.
Mistakes That Will Increase Your Life Insurance Premiums
Although we all make mistakes at one time or another, some can be very costly, especially if you make them on your life insurance policy.
One of the biggest mistakes you can make is to let your life insurance policy coverage lapse. If you’re not in good health, you may have difficulty getting your coverage re-instated.
Before you purchase a life insurance plan, make sure to consider your personal situation, and avoid these costly mistakes:
1. Lying on Your Application for Life Insurance Coverage
Although it may not seem like much to tell a little white lie, if you do it on your life insurance application it can be a costly mistake. While you may get away with your lie initially, and be charged a lower annual premium to start, the insurance company may find out later and adjust your premium.
Basically, the insurer has two years (it’s stated in the policy) to challenge the information you provide in your application for coverage. If the insurer discovers your lie, they can increase your rate, or choose to cancel your coverage, leaving you with no life insurance and the loss of all premiums you have paid up to that time.
2. Choosing No Medical Exam Life Insurance
Can you get life insurance without any medical exam required?
Yes, you can if you are willing to pay a higher rate for your policy. This means you will likely pay a higher annual premium for the entire duration of your coverage. It could add up to a lot of money over time even if it’s just 5% or 10% higher per year.
You may be better off going with a policy that requires you to take a medical examination, which is paid for by the insurance carrier. The insurer sends someone to your home or office to draw your blood, weigh you and perform other requirements; such as, checking your blood pressure.
3. Poor Health Habits
Any poor health habits you have could drive up your medical costs, and decrease your quality of life. And, on top of that, they will mean higher life insurance premiums which could be very costly.
A smoker pays more in life insurance premiums because life insurance is all about risk assessment. If the insurance company thinks you are going to die sooner rather than later, you are going to be charged a higher premium for your policy.
Poor health habits like heavy drinking, smoking, not exercising, overeating, taking drugs, and even working in a high-risk occupation, or taking part in a high risk hobby can mean higher life insurance premiums.
Focus on maintaining a healthy lifestyle and your premiums will be lower.
4. Failing to Ask for a Reassessment of Your Health
What if your health has improved over time?
If so, you can contact your insurance company and request a reassessment of your health.
For example, if you quit smoking more than 12 months ago or you have been off drugs for more than one year, you may be able to qualify for a reduced rate on your life insurance policy.
Ask your insurer if you can be moved to another class now that you have improved your health and your risk profile has changed.
You may need to take another exam, but if you can show that you are now healthier, you may stand a good chance of having your life insurance premiums lowered. A rate reduction due to improved health may lower your annual cost of life insurance by hundreds of dollars.
Besides, there’s no reason to continue paying more for your life insurance when you deserve a better rate.
NOTE: Every insurance carrier has different underwriting guidelines depending on your health condition.
For example, if you have diabetes one insurer may approve you at a Preferred rating while a different insurer may offer you a Standard rating for your health classification.
The difference between the two classifications could be as much as a 50% increase in your annual premium for life insurance.
That’s why it’s important to comparison shop for the most affordable plan from a highly-rated insurance company. Or else, you may end up paying way too much for your coverage.
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